Editor’s Note: The following article is an adaptation from a recent article in Bank Insurance & Securities Marketing, the official magazine of the Bank Insurance & Securities Association (BISA).

It’s not just savings...
Since the first 401(k) plan in 1982, the retirement market has become increasingly important to the financial services industry, with key drivers being savings accumulation, tax deferral and investment performance/growth. Today, as increasing numbers of defined contribution plan participants approach retirement, the focus is moving to post-retirement financial management. Though many advisors talk about this, few really understand the order of magnitude of the issues or the true implications in terms of client needs and how they will be met.

As the "baby boom" carries more and more people to retirement age, two sets of statistics highlight the issues they face on an individual basis:

1. For a married couple age 65, the probability of at least one of them living to age 90 is 55%. This means that many people will be living off their retirement savings for a longer period of time than they spent saving for retirement!
2. Looking at the table we see that people on average will live over four times longer in retirement than they did just fifty years ago! Further, 50 years ago most retirees were covered by defined benefit plans, but today most must create their own income plans from savings.

These and other market realities mean that individuals must manage the financial risks of longevity or transfer (some of) that risk to an insurance company via an annuity; and they must directly manage their income/assets or hire someone to do it.

This is a tremendous opportunity for financial advisors, but it is not a simple "product sale."

Market Dilemma/Opportunity
"We have convinced Americans to save for their retirement, but we haven’t shown them what to do with their savings when they retire." Nowhere is this exemplified more than on a typical 401(k) statement. Almost universally, these statements show the total lump sum amount of money accumulated with no indication of what (or how) that might translate into as a retirement income stream. Contrast this with a traditional pension statement which focuses on expected retirement income. Considering that 401(k) plans were originally conceived as a method to replace traditional pension plans, it’s ironic that consumers have been conditioned to think of this as accumulated wealth. They need to be reminded that they will need that money to create their individual "pension plan."

In our research we have found that consumers want to address retirement financial needs from a broad perspective. Solving for "income" will be most effective when discussed in the context of health care funding and wealth transfer (legacy). Our research also indicates that financial advisors will have the greatest success if they can help their clients address all three of these areas either directly or in partnership with other "experts."

Depending upon the assets of the client, this opens up the opportunity for a broad spectrum of financial product solutions including annuities, long term care, fixed and variable investments and life insurance. The key is to help your clients to understand the issues and then present a coordinated, relatively simple solution set, that allows them to retain as much "control" or flexibility as possible. As you approach this market, realize that most consumers do not really focus on (post) retirement financial issues until very close to their "Retirement Inflexion Point™." (That point when they stop living off a paycheck and start living off their savings.)

Translating Opportunity into Action
Following are some broad guidelines for a company or even an individual rep/agent who wishes to really focus on post retirement financial needs.

Determine the "strategic solution level" at which you will focus. (See chart). Depending upon your situation and capabilities, choose a narrow " p r o d u c t (annuitization)" strategy, a somewhat broader "income" strategy, or a comprehensive "retirement financial" strategy. Ultimately, some companies will form partnerships with non-financial firms to bring a "total retirement" strategy to selected clients. No matter what level you choose, however, it is important to understand the broader context as your clients will often be making trade-offs across a number of areas.

Leverage your firm’s market position. Whether developing the program at the firm level or as an individual rep/agent, you can leverage strengths/positioning of your institution. For example, you can:

• Position yourself as a source of "product neutral" solutions by providing a broader set of solutions than typically brought by your competitors.
• Leverage your institutional relationships to gain access to employees at the worksite — an ideal opportunity to reach people in a receptive environment.
• Use your company’s customer information and relationships to identify, better understand, and reach prospects nearing the Retirement Inflexion Point™.

Education is key. First, producers/advisors must understand the issues and nuances of the new retirement paradigm. Next, they must be able to educate their clients in a way that translates into action. This is best done through a coordinated, sequenced combination of seminars, printed materials and individual meetings. (See below.)

Process/tools: in order to effectively serve the market, you must have an appropriate process and toolset. The process should be educational, interactive and collaborative. It should incorporate "lifestyle" issues as well as finances, and allow the client to understand and make appropriate decisions/trade-offs. Briefly, our recommendations include:

• Seminars that will provide education on a wide range of retirement issues, their implications, and broadly how they might be addressed. There should also be an overview of how you can help simplify and provide solutions. Finally, there should be a "call to action" which could mean simply providing the information required to frame individual needs and develop (alternative) solutions.
• "Fact finders" designed to gather information on both sources and desired uses of funds.
• At this point, a good interactive retirement financial software tool is most important. The advisor and client can then "model" different scenarios to see tradeoffs and help determine a preferred course of action. Since most financial (planning) software available today is geared toward savings accumulation, it is important to find software that adequately addresses income/withdrawal issues as well.
• Finally, advisors and client reach agreement as to the desired (hopefully optimal) course of action. At that point, the advisor is in a position to recommend specific actions and appropriate products. It is important to have access to a broad portfolio of products to be able to fulfill a wide range of client needs.

Summary
There is a quantum paradigm shift occurring in the management of retirement finances. This, coupled with market demographics (e.g. baby boomers) presents a tremendous opportunity for financial advisors to expand their business by helping clients understand and manage their retirement finances.

Keys to success include: first, a true understanding of the new retirement market paradigm from the macro demographic and lifestyle issues to the nuance of creating an optimal, secure lifetime income stream; and second, the development of a structured process for clients (and reps or agents) to understand the issues, define and prioritize needs, and choose the appropriate product and service solutions. DSG

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